Updated: Oct 8, 2020
THE BCG MATRIX, PORTER'S FIVE FORCES, and THE ANSOFF MATRIX
The Boston Consulting group’s product portfolio matrix (BCG matrix) is designed to help with long-term strategic planning, to help a business consider growth opportunities by reviewing its portfolio of products to decide where to invest, to discontinue or develop products. It's also known as the Growth/Share Matrix.
The Matrix is divided into 4 quadrants based on an analysis of market growth and relative market share, as shown in the diagram below.
Dogs: These are products with low growth or market share.
Question marks or Problem Child: Products in high growth markets with low market share.
Stars: Products in high growth markets with high market share.
Cash cows: Products in low growth markets with high market share
HOW TO USE THE BCG MATRIX?
To apply the BCG Matrix you can think of it as showing a portfolio of products or services, so it tends to be more relevant to larger businesses with multiple services and markets. However, marketers in smaller businesses can use similar portfolio thinking to their products or services to boost leads and sales. The BCG Model is based on products rather than services, however, it does apply to both. You could use this if reviewing a range of products, especially before starting to develop new products. The model can be applied to a digital marketing strategy, and whilst the channels are different to tradition channels, the strategy remains the same - milk the cows, don't waste money on the dogs, invest in the stars and give the question marks some experimental funds to see if they can become stars.
PORTER'S FIVE FORCES
Understanding Competitive Forces to Maximise Profitability
Porter's Five Forces is a simple but powerful tool for understanding the competitiveness of your business environment, and for identifying your strategy's potential profitability.
This is useful, because, when you understand the forces in your environment or industry that can affect your profitability, you'll be able to adjust your strategy accordingly. For example, you could take fair advantage of a strong position or improve a weak one, and avoid taking wrong steps in future.
Five forces have been identified, that make up the competitive environment, and which can erode your profitability. These are as follows:
1. Competitive Rivalry. This looks at the number and strength of your competitors. How many rivals do you have? Who are they, and how does the quality of their products and services compare with yours? Where rivalry is intense, companies can attract customers with aggressive price cuts and high-impact marketing campaigns. Also, in markets with lots of rivals, your suppliers and buyers can go elsewhere if they feel that they're not getting a good deal from you. On the other hand, where competitive rivalry is minimal, and no one else is doing what you do, then you'll likely have tremendous strength and healthy profits.
2. Supplier Power. This is determined by how easy it is for your suppliers to increase their prices. How many potential suppliers do you have? How unique is the product or service that they provide, and how expensive would it be to switch from one supplier to another? The more you have to choose from, the easier it will be to switch to a cheaper alternative. But the fewer suppliers there are, and the more you need their help, the stronger their position and their ability to charge you more. That can impact your profit.
3. Buyer Power. Here, you ask yourself how easy it is for buyers to drive your prices down. How many buyers are there, and how big are their orders? How much would it cost them to switch from your products and services to those of a rival? Are your buyers strong enough to dictate terms to you? When you deal with only a few savvy customers, they have more power, but your power increases if you have many customers.
4. Threat of Substitution. This refers to the likelihood of your customers finding a different way of doing what you do. For example, if you supply a unique software product that automates an important process, people may substitute it by doing the process manually or by outsourcing it. A substitution that is easy and cheap to make can weaken your position and threaten your profitability.
5. Threat of New Entry. Your position can be affected by people's ability to enter your market. So, think about how easily this could be done. How easy is it to get a foothold in your industry or market? How much would it cost, and how tightly is your sector regulated?
If it takes little money and effort to enter your market and compete effectively, or if you have little protection for your key technologies, then rivals can quickly enter your market and weaken your position. If you have strong and durable barriers to entry, then you can preserve a favorable position and take fair advantage of it.
THE ANSOFF MATRIX
What is the Ansoff Matrix?
This model is essential for strategic marketing planning where it can be applied to look at opportunities to grow revenue for a business through developing new products and services or "tapping into" new markets. So it's sometimes known as the ‘Product-Market Matrix’ instead of the ‘Ansoff Matrix’. This focus on growth means that it's one of the most widely used marketing models. It is used to evaluate opportunities for companies to increase their sales through showing alternative combinations for new markets (i.e. customer segments and geographical locations) against products and services offering four strategies as shown.
How to use the Ansoff Matrix
Strategic questions that can be answered using the matrix include:
Market Penetration: How to sell more of your existing products or services to your existing customer base?
Market Development: How to enter new markets?
Product and Development: How to develop existing products or services.
Diversification: How to move into new markets with new products or services, increase your sales with your existing customer base as well as acquisition.
You may be executing more than one of these strategies depending on the stage in your business,
To evaluate the suitability of these strategies, issues to consider for each of these:
Market Penetration: change your opening hours of your store, reduce order processing times, showcase entire product portfolio etc.
Market Development: Does your research on your market share in your existing sectors back up potential demand for you to ? Can your company support this with existing resources?
Product and Development: cheaper manufacturers, improve quality, review packaging, ask customers and influencers for feedback etc.
Diversification: Assess expertise, technical know-how. Can you move into a new market with a new product offer using the skills in your business? Do you have a strong management team to support it.
The Ansoff matrix is useful for developing online strategies too.
Fairly new business then perhaps it's wise to focus on no more than two strategies, which could be Market Penetration and over time move to Market Development.